Operating Cycle of a Merchandising Business
The operating cycle of a merchandising business includes a series of transactions, and its accounting cycle's tasks are performed in a single period to maintain accounting records.
The operating cycle of a merchandising business involves the following steps:
- Step 1: Purchase of goods for resale.
- Step 2: Sale of goods for cash (or) sale of goods on account (customer account).
- Step 3: Collection of cash from accounts.
- Step 4: When cash is available, the business can then purchase more items to sell, pay expenses, and make a profit.
The operating cycle of a merchandising business can be represented as:
